GM’s Capitulation: A New Industrial Paradigm?

Posted by Tom Lindmark on January 25th, 2009

I missed this yesterday. It’s a truly fine article that appeared in the Wall Street Journal on Saturday. The theme is that GM essentially went into business with the U.S. government when it agreed to their rescue terms.

The curtain comes down this week on the 2009 Detroit International Auto Show — and with it likely on the American auto industry as we know it. This might turn out to be a watershed year when some of the industry’s big players permanently shift gears from serving ordinary car buyers to serving the grand designs of central planners.

The only other time that the industry subordinated its customers to the government was World War II. Then it had no choice. This time the industry, particularly General Motors, is desperately “retooling” itself to make Washington’s environmental and industrial policy priorities a vital part of its business revival plan.

By accepting government welfare, GM rejected the chance to transform itself into a worthy competitor to foreign manufacturers. That would have required making too many hard decisions, such as confronting unions, cutting legacy costs, and slashing dealerships under a Chapter 11 filing.

So, are we at a point at which the capacities of private enterprise are forced by circumstances to begin serving the aims of agents of social change? The author of the article would seem to think so. I would tend to agree and that’s quite a dangerous path to begin down. It’s certainly not a new path from an historical perspective but it is one that hasn’t tended to work out well at all.

We would all do well to watch the development not only of this particular arrangement but of subsequent arrangements between the government and private enterprise. There would appear to be movement among the largest industrial companies in the country to as they put it – get along. Basically, they seem to recognize that the tide of history in this country is moving towards much more government involvement in their business and rather than show some spine, the tendency is to acquiesce in order to maintain the status quo. Better a partner than an adversary seems to be the watchword, no matter what the ultimate cost.

Given some time tomorrow, I will put up a longer post on this subject. For now, let me say that our direction is troubling at best.